Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of
ID: 2537624 • Letter: R
Question
Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physiclans ed a lithotripter from Rand for $2,300,000 and leased it to Mid-South Urologists Group, Inc, on January 1, 2018.(FV of S1, PV of S1. FVA of S1, PVA of S1, FVAD of $1 and PVAD of $3) (Use appropriate factor(s) from the Quarterly lease payments Lease term No residual value; no purchase option Economic life of lithotripter Implicit $150,093-beginning of each period 5 years (20 quarters) interest rate and lessee's incremental borrowing 5 years rate Fair value of asset $2,300,000 Required: 1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing? 2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians Leasing from the beginning of the lease through the second rental payment on April 1, 2018. Adjusting entries are recorced at the end of each fiscal year (December 31) 3. Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the e at a cost of $20 milion. Prepare appropriate entries for Rand Medical fiom the beginning of the lease through the second lease payment on April 1, 2018. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 2 Requ'red 3 Lessce Lessor Prepare appropriate entries for both Mid-South Urologists Group and Physicians Leasing from the beginning of the lease through the second rental payment on April 1, 2018. Adjusting entries are recorded at the end of each fiscal year (December no entry is required for a transaction/event, select No journal entry required" in the first account field. Enter your answers in whole dollars and not in the millions of doliars. Round your answers to nearest whole dollarsExplanation / Answer
Part-1 Computation of Present Value of Lease Payment 1 Quarterly Lease Payment 150093 Cumm PVAF @ 3% for 20 Quarter 15.3238 Present Value of Lease 2299995.113 Cost of the Lease Asset 2300000 90% of Cost of Asset 2070000 Present Value of Lease Payment is more than 90% of the cost of the Asset. 90% recovery criteria is met. Hence, it will be treated as:- For Lesee: Capital Lease For Lessor: Direct Finance Lease Part-2 2. Books of Lessor- Rand Medical Manufacture Date Account Title & Description Debit Credit 01.01.2018 Lesser Recivable $2,300,000.00 Equipment $2,300,000.00 ( being Asset give on lease) 01.01.2018 Cash $150,093.00 Lease Receivable $150,093.00 ( Being Installment recived) 01.04.2018 Cash $150,093.00 Interest Revenue $64,497.00 Lease Receivable $85,596.00 ( Being Installment recived) Books of Lessee Mid South Urologist Date Account Title & Description Debit Credit 01.01.2018 Lease Asset $2,300,000.00 Lease Payable $2,300,000.00 Being Asset taken on Lease 01.01.2018 Leae Payable $150,093.00 Cash $150,093.00 ( Being Installment Paid) 01.04.2018 Leae Payable $85,596.00 Interest Expense $64,497.00 Cash $150,093.00 ( Being Installment Paid and Intesert Expense booked) 31.12.2018 Depreciation Expense $460,000.00 Accumulated Depreciation $460,000.00 ( being Depreciation Booked, 2300000/5 Year) Working Note for computaiton of Unmortised and Amortized finance charges Quarter-1 Opening O/s Installment paid Principal Interes closing O/s 1 $2,300,000.00 $150,093.00 $150,093.00 $2,149,907.00 2 $2,149,907.00 $562,907.00 $498,409.79 $64,497.21 $1,651,497.21 Part-3 3.. Books of Lessor- Rand Medical Manufacture Date Account Title & Description Debit Credit 01.01.2018 Lesser Recivable $2,300,000.00 Sales $2,300,000.00 Being Asset given on sale type lease Cost of Goods Sold $2,000,000.00 Equipment Inventory $2,000,000.00 01.01.2018 Cash $150,093.00 Lease Receivable $150,093.00 ( Being Installment recived) 01.04.2018 Cash $150,093.00 Interest Revenue $64,497.00 Lease Receivable $85,596.00 ( Being Installment recived) 31.12.2018 Depreciation Expense $460,000.00 Accumulated Depreciation $460,000.00 ( being Depreciation Booked, 2300000/5 Year)
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